W.it’s a straw In his hat, shades, and red-checked shirt, Randy Bekendam looks like a grizzled farmhouse, albeit in a Californian countercultural way. The tomatoes, zucchini, and King David his apples he sells at this time of year have never seen pesticides. A young family visits to pet his goats and learn about the health benefits of the soil. The 70-year-old doesn’t hesitate to share his beliefs either. they run deep. The land he had leased for the past 34 years, called Amy’s Farm, was sold from under him. Now, much like Joni Mitchell, he’s fighting to keep the rural countryside from being paved and turned into warehouses.
In his native Ontario, less than an hour’s drive east of Los Angeles, windowless “distribution centers” are almost as plentiful as orange and lemon orchards once were. From his 10 his acre lot he can see them closing in on him. Across the road, a building the size of 100 American football fields, or 5.3 square feet (492,000 square meters), rises from the dirt on what was once a dairy farm. A block away, Prologis, the world’s largest warehouse builder, has nearly completed his five-story facility on more than four square meters of land. The blue livery of the e-commerce giant Amazon has already graced its top rim. Nearby Amazon and his FedEx in the package his handler have larger boxes. An 18-wheel truck runs on country roads between them.The dust they raise suffocates the man who is hawking cocos Furios (chilled coconut) into the hands of the few Mexican farmers who worked the land. “These big rigs can be moved anywhere you want,” he tweets Bekendam.
It so happened that your columnist visited Ontario on September 16th, just after FedEx warned of gathering economic headwinds, abandoned earnings forecasts, and lost 21% in stock prices. This quickly spilled over into concerns about the future of his $80 billion warehouse company like Prologis. The company’s stock was already below its high this year after Amazon, its biggest customer, admitted to overcapacity.
I think the growing risk of a recession, the downsizing of Amazon (not Ontario), and the commotion of people like Bekendam fighting to stop building warehouses will unnerve this booming industry. maybe. Not a little Southern California’s Inland Empire was once called “the land of cheap dirt” and is now the hottest warehouse market in the world.
Almost everything in Inland Empire excites logistics geeks. The area is two-thirds the size of Connecticut and is sandwiched between his two very wealthy neighborhoods, Los Angeles and Orange County. It is approximately equidistant from his two largest ports in America, Los Angeles and Long Beach. It boasts FedEx and Amazon air hubs and rail networks. It is crossed by highways, sending goods shipped from Asia all over the country. And the population is growing. cbre, the real estate firm said warehouse construction was frenzied, reaching a record 39 square feet in the second quarter. It’s the demand for spaces like this that has driven rents up 72% in the last 12 months.
Given that consumer demand is peaking, it seems logical that corporate renters would resist such eye-popping price increases.But rent is still a relatively small part of logistics costs.James Brees cbre We believe that transportation of goods accounts for about half of a typical company’s supply chain costs. Warehouse rent is only 6%. In a prime location near a port, such as the Inland Empire, it may be worthwhile to purchase a warehouse if it reduces trucking costs.
In addition, structural changes in the global economy are accelerating demand. The move to e-commerce has slowed down since the height of the pandemic, but it still requires far more warehouse space than brick-and-mortar stores. Items are shipped in individual packages instead of space-saving pallets, and returns are piling up. Supply he chain disruptions and geopolitical risks have increased the desire for additional storage space. Prologis believes customers want to keep a “safety stock” of about one-tenth as a buffer.
Inland Empire also shows some of the growing pains, including the first signs of public backlash. Environmentalists argue that local councils submitted planning applications with little scrutiny during the pandemic. A draft communiqué calling for a moratorium on building warehouses in the Inland Empire, co-authored by Susan Phillips, director of the Robert Redford Conservancy at Pitzer College, is a burgeoning public concern, particularly due to pollutants emitted from diesel fuel. I’m talking about the health crisis. Trucks that pass schools and hospitals and clog highways. This year, Southern California’s Air Quality Authority began imposing a subtax based on “indirect” emissions from trucks servicing warehouse owners. “They’ve definitely become very anti-Diesel,” says one logistics boss. Local economist John Heusing mocks the environmental backlash:Noblesse duty Crap by wealthy members of the Inland Empire”. A larger blue-collar community welcomes the decent jobs offered, he says. There are few other employment opportunities.
School of hard NOx
Warehouse companies say they are starting to clean up their act. Amazon has ordered 100,000 of his delivery vans from Rivian, which manufactures electric vehicles. Prologis is building another business to provide charging stations for electric trucks. It aims to increase the power generation capacity of the solar panels on its rich roof tenfold within ten years. However, the industry is unlikely to move away from diesel for many years yet.
Bekendam, aka Farmer Randy, admits that stopping the warehouse boom will be an uphill battle. But he keeps fighting. At least he hopes the publicity he generates from his popular homestead will make developers think twice before tearing it down. I don’t want to.” ■
Read the article by Schumpeter, a columnist on global business.
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https://www.economist.com/business/2022/09/22/is-the-warehouse-business-recession-proof Is the warehousing business recession-proof?